This article focuses on the thinking, issues and opportunities surrounding Electronic Settlement for reimbursements to healthcare providers and to workers compensation claimants. The direct costs in utilizing paper payments for reimbursement are fairly easily calculated. The real issue and opportunity is with indirect costs and non-financial benefits (Is there really such a thing as a non-financial benefit?)
As Jack Welch, former CEO of GE, once said, “Anything we do that helps our customers to be more successful inevitably comes back to benefit our company………” This paper examines some of the indirect benefits to help both “internal” and “external” customers to be successful.
Overview
While the healthcare industry wrestles with a multitude of newly created mandates and challenges around expanded coverage, reimbursement rates, quality improvement, and certainly, cost to consumers, one thing remains certain; reducing operational expense has direct and measurable impact throughout the payer/insurer-to-provider value-chain.
Why then has the move from paper payment (checks) to electronic payment (EFT) for providers in the private sector been so slow to gain acceptance?
Often times, the benefits from electronic provider payment (more accurately… Electronic Settlement) are measured in postage cost savings. One stamp per one check (+) cost of paper (x) number of payments (=) cost of paper payments.
While the math is correct, the equation is incomplete and doesn’t take into account the unseen or indirect expenses incurred by payers, insurers, and provider networks to utilize and support the paper payment process.
True, if only postage and paper costs are included in the cost-per-payment calculation, paper payment to providers can often appear to be less expensive than the electronic payment alternative, mostly due to consolidation (or lack-there-of) and type of payment specifics.
Typical Cost-Per-Payment Estimates
In our experience, we have seen cost-per-payment estimates from insurers and providers that range from a few pennies to a few dollars for paper payments to providers and claimants. Electronic payment costs are typically estimated at between 10 cents and 35 cents per payment, although these numbers vary widely.
Direct provider payment costs in any given payer’s environment can be easily estimated. But the real issue is not one of direct cost, it is one of indirect cost, those costs that are not directly related to paying providers but should be included in calculating the cost and savings when comparing paper provider payment with the electronic payment alternatives.
Indirect Costs
As one example, it has been estimated that payer call center activity (numbers of calls from/to providers or claimant regarding lost or incorrect payments) can be significantly reduced as a result of utilizing an integrated electronic provider payment solution. (One that matches claims data with payment data with the financial transaction). Estimates range between 5% and 15% reduction in call center traffic. Where is this cost accounted for when comparing provider payment alternatives? In most cases, it is not.
With call center transaction costs ranging from a few dollars to tens of dollars per incident (i.e. until the issue is resolved) it’s easy to see where potential cost-savings in this area alone could be substantial. Yet, these costs are rarely calculated by insurers and payers when calculating their cost-per-payment or cost-per-claim solution alternatives.
There are many other hidden or indirect costs to consider when trying to accurately assess the true cost-savings and benefits of electronic provider payments over traditional paper payment methods. What about impact on provider network satisfaction? Payment cycle-time? Patient/Consumer satisfaction? Logistics support? (for paper transactions) Reconciliation time and expense? These costs must all be accurately estimated and considered if a truly meaningful comparison is going to be made between the costs of paper fulfillment and electronic payment to claimants and to providers.
Says one healthcare insurance company executive “As someone who has spent most of his career in a health insurer environment, I can certainly agree that insurers (payers) don’t know the true costs involved in servicing their provider networks, and in particular, the cost of reimbursing (paying) their providers.”"
He continues, “Certainly, we know the cost is more than a stamp and an envelope (as Mr. Korzon indicates) but beyond that, there isn’t a great deal of thought put into discovering the “true” costs. The assumption is made that any unknown costs are either insignificant or included (accounted for) elsewhere. The truth is, we are all guessing.”
Cost savings or market growth? Why not both?
Another healthcare industry business development executive comments “So electronic payments and remittances is a no brainer initiative that saves money, delights constituents and saves trees. Why then is adoption so low? What are the roadblocks to this utopia?”
Another industry executive points out “If those of us in the commercial or private health insurance business don’t seize the opportunity and develop a standardized approach to utilizing electronic provider payments, then we will have no one to blame but ourselves when
Big Brother forces some form of compliance down our throats” He continues, “In this case, the medicine is for our own good, we just need to have the resolve and focus to pick the low-hanging fruit”
Perhaps we should consider Electronic Settlement as less of a cost-reduction strategy and more of a business-growth strategy. As one insurance industry cost-analyst observed, “The dynamics within health care industry have shifted. Cost has always been concern #1. To be sure, much has been accomplished to date by IT to address department and cross-organizational costs. But the focus now looks to be shifting to a view of the provider network as competitive advantage, while still maintaining disciplined cost controls. Electronic Settlement seems right inline with this focus”
Conclusions
Do we really need to make a choice between reducing operating cost and growing market share? Do we really need to study the question in detail in order to come to a conclusion that we all already intuitively know? The answer is probably not.
The Six Sigma community and the Quality in Healthcare advocates stand shoulder to shoulder with the Claims Managers, the Member Services Associates and the Provider Services Executives. Each one knows and feels the benefits of improved efficiencies in the transactions between payers, providers and members.
While there can and should be ongoing discussions on implementing and enhancing the claims settlement and provider payment activities, there is ample technology, solutions, and benefits available today to allow both payer and provider organizations to both reduce operating expenses and to better service their provider and member networks; and in the process grow market share.
Perhaps we should look to Jack Welch again for the impetus and resolve to bring about the improved efficiencies so desperately needed within healthcare operations. His quote continues….” and surely, our customers will hold us equally accountable for our failure to do the things that will help them to succeed”
About the Author
For more than twenty-five years, Joseph Korzon has worked with some of the most prestigious and successful companies within the healthcare, financial services, and information technology industries. His experience includes work with UnitedHealth Group, Hewlett Packard, Xerox, Aetna, Cigna, MassMutual, General Electric and IBM. He has distinguished himself as a top performer, insightful business manager and business leader.
In addition to his professional achievements, Mr. Korzon has been actively involved in many healthcare, professional, and charitable organizations. These include UMass Medical School Disability and Community Services Program where he helped create pilot community living and outreach programs, Connecticut Special Olympics Program, and the Brain Injury Survivors Network (BISN) where he has served as founder and president since 1997.
Does anyone have information on what the expected ROI is for converting to electronic provider payment? Is there any data on non-financial impact on the payer or on the provider network?
Thanks.
Provider payment changes need to be driven by providers. Where is the push? If providers don’t demand better service and easier practice management, why would the healthcare payers take the initiative. Savings or not, it seems that the payers have plenty on their plates with ICD-10, 5010, new HIPAA mandates, etc. Why would they want to take on something new unless they are forced into it?
True. Better ROI data would support the decision process. But we as payers should be developing this data ourselves.
Perhaps we need to better document the savings and benefits from electronic claims settlement. You can’t blame the payer business groups for being cautious about cost-savings claims or similar. As it’s been said…..’Once burned……” We need good data to make informed decisions.
I agree totally with Ericka. The benefits of moving to an electronic settlement process far outweigh the inconveniences of learning and using new processes. And the cost savings are real. I have seen operating costs cut by one-third within my operation. Where else can you make such a financial impact in a 90 day implementation?
Provider adoption of electronic claims payments is slow because of the lack of a true standard. ANSI 835 only takes you so far. That’s not to say that the use of electronic payments should wait until all the issues have been addressed. Like any business process change, there are always work-arounds and exceptions that need to be created. There are many significant financial benefits to using electronic payments even without a perfect solution.
Elise makes a valid point. The fact is that payer organizations have typically shown little interest in making payments to providers happen more quickly, benefiting from the float time.
Also, while auto-posting into the provider’s practice management system would be a time-saver for the provider, the task of making this actually happen has been left for the practice management system suppliers to address with their provider clients.
As noted in Mr. Korzon’s article, the Insurer/Payer organizations must begin looking at providing these services and capabilities not only as a matter of efficiency and cost-savings, but also as a way to improve relationships with their provider networks.
What about the cost savings opportunities on the provider side?
Most provider organizations have a practice management software that allows them to post payments against claims and reconcile payer/consumer payment with each encounter. These practice management software can also handle 835s.
Why is the provider community not pushing the payer community for electronic payment? It will not only reduce the cost in their back office (personel and time related to manually reviewing checks and updating the system) but will also provide them with an opportunity of faster payment!
From my experience in EDI operations in a large payer environment, standardization is a big issue, in particular the ANSI 835. There is an old saying that still holds true, “If you’ve seen one 835, you’ve seen one 835″
This doesn’t mean that we can’t or shouldn’t take advantage of the current standards and cost savings opportunities, we should.
So electronic payments and remittances is a no brainer initiative that saves money, delights constituants and saves trees. Why then is adoption so low? What are the roadblocks to this utopia?
This discussion is right on target. We often overlook cost-savings opportunities that stare us right in the face. Save money, service providers better, be environmentally responsible…. sounds like it should be a no brainer. – Ron
What about the impact on ecology? More paper, less trees, more CO2. I know that it may not be at the top of the list of priorities for health insurance companies, but there is definitely an economic benefit to minimizing waste, better utilizing natural resources, and the positive “Green” profile for the company.
I work in a large medical group and I can tell you that the doctors in our group certainly wouldn’t mind getting reimbursed in a more timely fashion as well!
As someone who has spent most of his career in a health insurer environment, I can certainly agree that insurers (payers) don’t know the true costs involved in servicing their provider networks, and in particular, the cost of reimbursing (paying) their providers.
Certainly, we know the cost is more than a stamp and an envelope (as Mr. Korzon indicates) but beyond that, there isn’t a great deal of thought put into discovering the “true” costs. The assumption is made that any unknown costs are either insignificant or included (accounted for) elsewhere. The truth is, we are all guessing.